Al Alaam Al Youm Newspaper
In Banks and Financing Committee
Financial leasing and factoring are necessary for financing small and medium-size enterprises
In the framework of executive steps to create specific mechanisms for solving the problems of financing that hinder companies' growth, Banks and Financing Committee of the Egyptian Society organized a symposium the day before to discuss financial leasing and factoring companies' role in financing SMEs.
In the beginning, Ahmed Shaheen, Director General of Egypt Factors, stated that factoring depends on financing companies, which sell in credit system, where factoring companies purchase original commercial papers from customers to guarantee purchaser's payment of 100% of the invoice value, a matter that provides guarantee for customer. He pointed out that factoring companies provide financing up to 90% of the invoice value.
He added that factoring differs from banks, as factoring deals with companies, which work with open-account system, while banks only finance greater companies, which work with this system. Factoring also does not necessitate existence of guarantees and it may finance SMEs and merchants. He also pointed out that factoring may be done "with recourse or without recourse" and there is another advantage, which is the speedy approval that does not exist in dealing with the bank. He pointed out that the bank puts its eye on specific production lines and the company's balance sheet, while factoring companies look, in the first place, at the invoice and its follow up.
Shaheen stressed that Egypt Factors is the only company specialized in factoring in Egypt. At the same time, there is another company specialized in exports' factoring. He pointed out that the company deals with all companies, whether they are industrial or service companies, like tourist, food product or packing companies, while it is difficult to deal with sectors in which sale is not made in full, like contracting sector. He also pointed out that the most important in the business is the continuity of cooperation between the seller company and the purchaser company, where quality should be conditional. He added that many companies are expected to enter in factoring within the next period.
Dr. Shahinaz Abdullatif, from the International Company of Financial Leasing, said that financial leasing is considered the best means for financing small and medium-size companies. It is a contractual relationship between lessor and lessee, where the lessor finances a fixed asset via financial leasing companies, while lessee pays installments on specific periods.
She added that financial leasing differs from banks, as it is the nearest financing tools to Islamic legislation and it is a very flexible tool that meets the requirements of SMEs, where it is possible to contract within five working days. She pointed out that, with the increase of the needs of small and medium-size companies, a specialized company was incorporated to finance such projects. Such company includes companies affiliated to official bodies, where it will deal with companies with capital less than 20 million LE.
She pointed out that financial leasing is a more flexible and less complicated tool for small companies' requirements, where upon request of customer small balance sheet, inference is made by other points, which are more competent than balance sheets like experience. At the same time, we find that balance sheet is the main element for banks.
Ayman Al-Suroji, the Financial Manager of Mo'men Group explained Mo'men's experience with financial leasing companies, where he stressed that those companies were a main reason in Mo'men Group's success. He pointed out that Mo'men, till 2007, was one of the medium-size companies and by virtue of financial leasing, it became a complete foundation, including 6 companies with investment volume of 250 million Egyptian Pounds and sales volume of 600 million Egyptian Pounds.
Al-Suroji said that the beginning of Mo'men was in 1988 with one restaurant covering an area of 80 square meters and with a cost of 12 thousand LE. Since that year up to 2001, Mo'men did not deal with banks, where there was complete adherence to Islamic legislation. So, it turned to financial leasing to equip its factories with equipment and machinery, a matter that assisted Mo'men o achieve such success, pointing out that Mo'men's dealing with financial leasing is not a success, but it is either to be or not to be, as it was difficult for it to deal with banks.
Al-Suroji demanded small and medium-size companies to select a competent and professional chartered accountant as long as there is a future vision at these companies for development and growth.
From his side, Ahmed Daif, Chairman of Al-Tawfiq Company for Financial Leasing, said that 40% of the company's budget is allocated to SMEs and pointed out that there are numerous types of financial leasing companies, represented in financing companies that are fully owned by banks, whose policies follow bank policies, and there are independent companies, which are free to put their own policies. He hinted that there are companies working in one project only. These companies are very important and represent the future of Egyptian industry.
He demanded that the manual to be issued by Banks and Financing Committee should include more information about financial leasing through getting acquainted with the policy of financial leasing companies and financing volumes, whether they are small or huge.
Mohamad Mohie, Chairman of Banks and Financing Committee at the Society said that the committee decided to issue a manual for small and medium-size companies to obtain financing, pointing out that there is a lack of financing awareness in SMEs.
Dr. Khalid Najati, Member of Financing Committee in EJB, said that SMEs represent 80% of the Egyptian economy. Despite that, they obtain 10% of banking facilities. Therefore, full dependence on bank financing is not possible and there must be more than one alternative before these companies, such as financial leasing or factoring.